States enacted franchise laws to protect dealership franchise owners (and consumers) from auto manufacturer overreach.
In our analysis, we explain the economic justification of the U.S. dealer franchise system. Additionally, we also counter arguments against the franchise system and dispel the “direct sales myth,” by providing real facts with simple talking points.
The product and nature of dealer interaction over the life of the car (service, parts, recalls, protection of residual values, etc.) determines the investment that is necessitated to support sales and ownership requirements. The costs associated with providing those services would be identical whether by direct sale or from independent dealers.
There is a simple economic fact that mandates the protection of a franchise. If an automaker mandates location, design, service equipment, software investment, monthly reporting of financials, and other burdens on the dealer, the investment is so great that no one would make such an investment without the protection that franchise law provides. The authority of the auto manufacturer to mandate and require a dealer to make this substantial financial investment in a dealership required that states and the Federal Government enact protections for dealers from adverse actions from their automakers. Even with large auto dealership groups, manufacturers see each store individually in terms of its performance relative to the market, its competing same-brand stores in a region, and for goals and objectives set by the manufacturer.
Obtaining this analysis:
Our analysis can be obtained by contacting us directly. Please visit our contact page.
Ms. Keller and MK&A Partner, Kenneth Elias, are the authors of the “Consumer Benefits of the Franchised Dealer System.” This study, which was sponsored by NADA, substantiates that consumers receives significant
benefits from the franchised dealer system.
The study can be downloaded from NADA’s website: